Posted by: tenantreptimes | July 12, 2015

8 Reasons Not To Use A Landlord Broker To Negotiate Your Lease​

Presented By Mark Rauch

“If there is such a thing as good leadership, it is to give a good example”  -Ingvar Kamprand

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Posted by: tenantreptimes | November 25, 2013

Negotiate An Awesome Office Lease 
Presented By Mark Rauch
“Your most unhappy customers are your greatest source of learning”  -Bill Gates- 
Office space is one of the largest expenses a company takes on yet many Tenants are not properly represented and end up signing a lease that commits them for many years without any meaningful attempt to negotiate the terms of the lease.
The landlord will typically hand you a “standard” lease, as if it is the perfect form of a lease agreement.  This lease will certainly be in favor of the landlord.  No “standard” lease exists.  Don’t be afraid to carefully review and negotiate the terms of the lease.

Negotiating a favorable office lease will depend on how much leverage you have. Are other companies making a play on the same space? Has the space been vacant for a long time? Is it in a prime location? You don’t want the landlord to call the shots.

Pick 3 viable options and negotiate all 3 simultaneously.  Play one landlord against the other in order to drive the rate/rent down and concessions up.

Here are some suggestions to help you negotiate a great office lease for your business:

Space

To compare different office spaces and run a proper cost comparison analysis, you need to know the exact rentable and usable square footage of each space you’re considering.  Usable square footage is the area you actually will occupy. It is less than rentable square footage, because it deducts the common areas such as public corridors, elevators, lobbies, and bathrooms from the overall calculation.

Permitted Use Of The Premises

The office lease will have a section that sets forth the permitted uses of the leased space.  Make this clause as broad as possible because your business may grow and your plans may change. You want the flexibility to use the space in any reasonable, legal manner. Make sure that zoning ordinances do not prohibit you from running your business in that location.

Term Of Lease

Landlords will usually give more concessions for a longer term lease however your needs may change and you may find yourself locked into paying an above market rent should rates decline over time. On the other hand a long term lease gives you stability and keeps your rent down in a rising economy.

A shorter-term lease allows you the flexibility to pack up and leave sooner if you are not pleased with the location.

Make sure to negotiate rights to renew, terminate, expand or contract. It may not be possible to get everything nevertheless you want maximum achievable flexibility.

Rent Escalations

Fixed rent is relatively rare unless the space is located in a high vacancy market or the space has not generated any interest. Landlords will insist on annual increases based on either a set annual percentage increase or the percentage increases in the Consumer Price Index (CPI ).

Operating Expenses

Take into account operating expenses the landlord may pass on to you.  Some leases require the tenant to pay for cleaning, building security, electricity, HVAC (heating, ventilation, and air conditioning), maintenance, and repairs.  If the landlord is charging you separately for these services, try to negotiate a fixed fee or cap on the amount.  Other leases will charge you your pro rata share above the base year. Make sure to negotiate operating expense exclusions. Landlords will charge extra for services supplied after-hours or on weekends. Negotiate a certain amount of “after hours” usage if your business runs after hours.

Tenant Improvements

Your new space may require improvements or alterations from simple carpet and paint to a complete build out.  Who pays for these improvements? It depends on how tight the commercial office space market is and how sophisticated the landlord is. The more sophisticated landlords will usually build the space out for the right tenant and lease term with a cap on total tenant improvement dollars. The amount is totally negotiable. Most leases specify that the tenant cannot make any alterations or improvements without the landlord’s consent.  Ask for a clause that says you can make alterations or improvements with the landlord’s consent and that the consent won’t be unreasonably withheld or delayed.

Repairs, Improvements, And Replacements

Get very clear about who is responsible for what kind of repairs, improvements, and replacements.  Many businesses improve upon the structure of the original location by adding additional wiring for computers and additional telephone lines as well as enhancing the capacity for other technology.  Negotiate that such upgrades can remain without penalty after the term of the lease expires in case that particular technology becomes obsolete.  In addition, use the fact that your technological improvements will increase the value of the property as a bargaining chip.

Assignment And Subletting

Seek not to allow severe limitations or prohibitions on assigning or subletting the space.  Startup companies especially should negotiate flexibility in the assignment and subletting clause.

Watch out for a clause that says a change in more than 50 percent of the company’s stock ownership will be deemed an assignment that is prohibited without the landlord’s approval.  As the company grows and new people invest in the company, this clause can be inadvertently triggered.  And if the company shrinks, you also need to be able to sublet.

Option To Renew

The renewal rate will be stated in the lease as “fair market”. Make sure to have language in the lease that defines how the fair market is determined.  It will save you money down the road especially if the price of office space escalates.

Right Of First Refusal For Additional Space

Negotiate a right of first refusal or right of first offer which obligates your landlord to present any pre defined space that becomes available in the building to you before marketing it to third parties.  It also obligates the landlord to bring you any deals he’s willing to sign with third parties for pre defined space in the building and gives you the opportunity to match the deal and preempt the third party.

Other Key Terms To Think About Include:

What charges, taxes or fees are or are not included in the rent?

How much is the security deposit and what are the conditions for its return?

How can the lease be terminated early and what penalties will you have to pay?

How are disputes resolved, should they arise, between lessor and lessee?

Watch Out For These!

The tenant’s obligation to pay any increased taxes as a result of the landlord selling the building. Negotiate Prop 13 protection if possible.

The landlord’s right to terminate your lease early for his convenience.

A disclaimer about the building and the services provided to tenants.

Personal guarantee. If this is required, include language to protect yourself.

Ultimately, if a prospective landlord is difficult to deal with during lease negotiations and makes unreasonable requests, you might want to consider leasing office space elsewhere.

It is strongly suggested to have a seasoned Tenant Rep and real estate attorney at your disposal.  Don’t sign anything without having them review the terms in advance.

Please contact me to discuss your office space needs.

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.
 
I also wanted to reiterate that I am requesting meetings with Professional and Corporate Office Tenants.  I am looking to represent a handful of Tenants, at any given time, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email me to schedule a time to discuss how I can help
 
Other than representing you, a referral is the greatest compliment I can receive.
 
My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios.

 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend.

Regards,

Mark

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

Mobile: 818-943-2959

Markrauch@traversrealty.com

http://www.linkedin.com/in/markrauch

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s 

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

 

Posted by: tenantreptimes | March 17, 2011

“Turnkey” Office Space Improvements

Presented By Mark Rauch
 
“The great leaders are like the best conductors-they reach beyond the notes to reach the magic in the players”.
                                                              -Blaine Lee–                                                                                                  
office space improvements
Most commercial office Lease transactions involve some sort of interior Tenant Improvement (“TI”) construction.   The project can be as minor as installing new paint and carpet to spruce up a tired space, or as extensive as a full office build-out from a “shell condition”.  Unless a space is specifically offered “as-is”, Landlords typically provide some sort of TI Allowance – usually dollars/Rentable Square Feet (“RSF”) – as part of the Lease package offered to prospective Tenants.
 
Distinctions
In other cases, a corporate real estate tenant may negotiate, as one of its key Lease terms, that a Landlord provide the Tenant with a “Turnkey” Build-Out of the Tenant’s desired interior layout.  With this type of agreement, the Landlord pays the full costs of the architectural and engineering services, construction, construction management and any required permits or fees.  The costs of the TI construction are incorporated into the agreed Lease rate and the Tenant has no direct costs for this construction.  The Landlord assumes the management responsibility for the project and, except for Tenant caused delays, assumes the schedule risk for the project.  The Tenant is essentially handed the keys to its new space when the construction is complete.
 
The Process
With a Turnkey Build-Out, the process often begins with an interior architect working with the Landlord and Tenant to create a Pricing Plan.  A Pricing Plan will show the Tenant’s required build-out (walls, doors, millwork, etc.) and will contain keyed notes providing details about finishes (paint, carpet, counter surfaces), electrical issues (lighting, outlets, dedicated circuits), notes on the plumbing required for break rooms or coffee bars, and numerous miscellaneous notes required for the proposed construction.  If the Landlord approves the Pricing Plan, it is provided to several general contractors experienced with office TI construction to obtain preliminary pricing for the proposed TI Construction.
If the preliminary prices are acceptable, things can move forward.  However, if the preliminary prices are too high, the Landlord may refuse to cover the full costs.  At this point, the Tenant may: continue to negotiate or walk away from the deal; modify its plans to lower the costs; or agree to pay some portion of the costs, either as a cash payment of through higher rent payments.  If an agreement is reached, the Landlord will authorize the architect to prepare detailed Construction Drawings.
 
Ensuring Good Results
The key for both the Landlord and Tenant is developing plans that clearly identify what will be built and delivered to the Tenant.  Misunderstandings over this process are usually avoided with detailed plans, good communication between all parties involved in the negotiation and design process and strong oversight of the general contractor by the Landlord.
 
Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.
 
I also wanted to reiterate that I am requesting meetings with Professional and Corporate Office Tenants.  I am looking to represent a handful of Tenants, at any given time, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email me to schedule a time to discuss how I can help
 
Other than representing you, a referral is the greatest compliment I can receive.
 
My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios.

 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend.

Regards,

Mark 

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

Mobile: 818-943-2959

Markrauch@traversrealty.com

http://www.linkedin.com/in/markrauch

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s 

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

Posted by: tenantreptimes | December 24, 2010

8 Varieties Of Deception Landlord Brokers Give Tenants

Presented By Mark Rauch

“Success is not final, failure is not fatal; it is the courage to continue that counts.”        -Winston Churchill- 

You shouldn’t be surprised to find that the advice landlord brokers are accustomed to offer doesn’t serve your interests.  Here are the 8 varieties of deception you’re likely to hear from a dedicated landlord broker:      

 

1. “We can get you the best deal because we know the market.” 

Bad leases are signed not because a tenant  misses a great space but because the  leases are poorly negotiated.  All brokers have access to available space.  Landlords and their brokers let everybody know about availabilities directly, through frequent mailings, as well as through real estate databases which brokers subscribe to.  Leases go wrong because costs soar higher than bargained for, because the leases didn’t stipulate adequate performance standards for a landlord’s performance in such areas as heating, ventilating, air conditioning, electricity and other services, because leases restricted a company’s flexibility, imposed costs beyond those bargained for, and many other reasons – every one of which arise from the way the lease was negotiated.  A badly negotiated lease often turns a “great space” into a bad deal. 

2. “We can get you a great deal because we have a relationship with the landlord.” 

If your company has the creditworthiness which suggests you can meet your lease obligations, then any landlord would love to have you as a tenant.  The suggestion that you need some kind of “in” to do a deal is ridiculous.  Landlords need the paying tenants.  A Tenant Rep will represent your interests – not the interests of some landlord with whom they have a relationship or hope to build one.  This is because many leases offer blatantly anti-tenant terms, some buildings have a high level of tenant dissatisfaction, some landlords routinely violate lease terms, and there are landlords whose financial troubles could impair their ability to perform as provided in a lease.  When a broker entices you with claims of a special relationship with the landlord, you must ask whether such a relationship is consistent with an obligation to represent you.  Will such a broker be free to offer full disclosure of all costs in a proposed lease?  How about management practices that will affect you?  Will a landlord broker be able to negotiate forcefully on your behalf if this means opposing a landlord from whom they hope to gain lucrative agency business?  Of course, you want lease negotiations that are conducted amicably.  This means insisting upon a professional approach, not trying to buy goodwill. 

3. “We can provide great service because we have a lot of branch offices.” 

One doesn’t need branch offices to identify spaces in another city, because landlords list their availabilities through brokerage networks and databases.  Landlords want everybody to know about what they have, so they can start getting revenue as quickly as possible.  If branch offices are serving landlords, then they face a serious conflict of interest in their ability to protect you.  After all, every landlord is a current client or a prospective client, and aggressively protecting tenants jeopardizes lucrative landlord business.  The key to signing a good lease is having good site analysis, good lease analysis, good lease negotiation and good follow-up.  These depend on the calibre of the Tenant Representative, not the location of their offices. 

4. “Don’t rock the boat and upset the landlord.”

Landlord brokers often advise tenants not to negotiate aggressively, not to demand that landlords comply with lease terms and, once a lease is signed, not to insist on the rights provided in the tenant’s lease.  Some tenants seem to be afraid a hostile landlord might become more difficult to deal with.  Yet in our experience, landlords respect tenants who know their rights and pursue their interests in a business-like way.  While it’s true a tenant often needs a landlord’s cooperation, it’s also true a landlord needs a tenant to help pay the mortgage, and it’s generally cheaper to keep a current tenant satisfied than to incur the cost and possibly lost income resulting from a dissatisfied tenant moving out. 

5. “Hurry up and get the deal done.”

More than anything else, landlord brokers push tenants to get a deal done.  These brokers will tell tenants that if they don’t quickly commit to a space, somebody else will take it. Such pressure is especially intense in a “hot” market favoring landlords.   Hurrying into a deal risks neglecting comprehensive due diligence, overlooking costly drawbacks in a building, failing to properly analyze the risks and total costs of a landlord’s draft lease – and signing up for a transaction which can become a serious liability to your company. 

6. “Since you’re such a big tenant, you have very few alternatives.”  

Some of the worst leases have been signed by big companies probably because top executives felt they had to be in a particular building.  While it’s true the number of large spaces in a particular area are limited at any point in time, this definitely doesn’t mean big tenants must accept whatever terms landlords care to offer.  Getting a good deal, however, means big tenants must gain every possible bargaining advantage.  Tenants must have a representative serving tenants exclusively – and not the interests of landlords.  It’s critically important for a large space user to start the site search early.  A million square foot tenant should start at least five years before lease expiration.  Starting early means you’ll be able to see more spaces and include options that require building from scratch as well as different options for leasing vs. owning.  There are almost always more alternatives for large space users than you might imagine, including existing buildings in the same area that can be repositioned, buildings in a different area once considered off limits, and build-to-suits.  By developing viable alternatives, objectively analyzed in detail, you will understand your true costs and trade-offs.  Only with this background can you know if a premium is being demanded for the solution you prefer, and whether it is a premium you think is worth paying.  Equally important, all this means you’ll be able to pursue preliminary negotiations, and if they don’t lead to satisfactory terms, you’ll have time to walk away and begin negotiations elsewhere. 

7. “The landlord’s draft lease is boilerplate, standard terms.” 

So-called “Standard terms” invariably mean pro-landlord terms because leases are drafted by landlords which are naturally protecting their interests.  You wouldn’t expect them to do otherwise.  “Standard terms” often includes tenant budget destroyers like operating expense loopholes, mark-ups, vague landlord performance standards and no audit rights.  Don’t be pressured into accepting “standard terms.”  A lease negotiation should be driven by your business objectives, not by a landlord’s desire to avoid risk (and pass it on to tenants like you).    Your business needs must be translated into lease terms to be secured during negotiations.

8. “Just focus on rent and workletter. ” Let the landlord’s lawyer take care of the fine print. 

Many corporate executives imagine they’ve locked in their biggest costs by shaking hands on these two terms.  However, the rest of the lease is loaded with costs.  There significant non-rent costs in a typical lease, many hidden, and it’s contrary to the interests of landlord brokers to identify these costs – or do anything else that might jeopardize a deal.  Landlord lawyers don’t provide complete protection for tenants because they aren’t trained to analyze, nor have hands-on experience with, business issues which are responsible for so many excessive lease costs.  Landlord lawyers don’t claim to know how desirable or undesirable a landlord draft lease is from the standpoint of the current real estate market.  They aren’t experts on the economics of building operating systems.  They aren’t expected to know how various ways of charging for electricity will affect costs.  They don’t audit landlord billings, so they don’t see whether particular landlords honor or evade lease terms – and what must be done about it.  Landlord lawyers typically review a lease without ever visiting the building, and many problems are missed because a lease didn’t address certain things which must be seen to be appreciated – or avoided, as the case may be.  It is imperative to have a Tenant focused lawyer on your team. 

Overall, the most common reason tenants seem to take bad advice from landlord brokers is that they’re impressed by the big deals such brokers have done.  But as talking points, big deals are meaningless unless they’re good deals for tenants.  The fact is that a substantial number of leases have serious problems, even though these leases were reviewed by competent lawyers.  It’s shocking to see how many leases have inadequate performance standards.

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.

I also wanted to reiterate that I am requesting meetings with Professional and Corporate Office Tenants.  I am looking to represent a handful of Tenants, at any given time, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email me to schedule a time to discuss how I can help.

Other than representing you, a referral is the greatest compliment I can receive.

My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios. 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend. 

Regards,

Mark 

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

Mobile: 818-943-2959

Markrauch@traversrealty.com

http://www.linkedin.com/in/markrauch

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s 

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

Posted by: tenantreptimes | September 6, 2010

John Mauldin Seminar-Part 1 To Part 5

Who is John Mauldin?  And why should you care?  Well, he is a keen observer of the economy and an articulate speaker about it.  His weekly newsletter (Thoughts From The Frontline) is followed by some 1.5 million people, including some very astute money managers around the globe.  In short, John Mauldin is very influential, meaning his thinking matters.

Mr. Mauldin recently spoke at a forum in Vancouver.  I offer you today his presentation, broken down into five parts.  Watch them all at once, or watch them piecemeal over the course of the week…but watch them.  Very enlightening.  And I claim we need light on this subject.

Part 1  http://tinyurl.com/2br3lc2

Part 2  http://tinyurl.com/25lzyt2

Part 3  http://tinyurl.com/293uwek

Part 4  http://tinyurl.com/2djwgk8

Part 5  http://tinyurl.com/262a4mw

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.

I also wanted to reiterate that I am requesting meetings with Professional and Corporate Office Tenants.  I am looking to represent a handful of Tenants, at any given time, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email me to schedule a time to discuss how I can help.

Other than representing you, a referral is the greatest compliment I can receive.

My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios. 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend. 

Regards,

Mark 

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

Mobile: 818-943-2959

Markrauch@traversrealty.com

http://www.linkedin.com/in/markrauch

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s 

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

  

Posted by: tenantreptimes | August 27, 2010

From Office Space Needs Analysis To Exit Strategy

Presented by Mark Rauch

You can expect a proactive Tenant Representative to:

Analyze your space needs.

The Tenant Rep will assist you in calculating your actual need for space and determining your particular layout needs.  This will prevent you from wasting time on property negotiations that are not right for your organization.  Most importantly, it will prevent you from leasing too much space. The landlord has no incentive to help you economize on space and save money.

Investigate all available properties and determine which are the most appropriate for your needs.

This involves more than scanning the available listing services. A professional tenant rep will identify a property that is not an obvious choice to meet your needs.  This could result in lower rental rates and space that is better suited to your needs.

Create a bidding war among several landlords for your business.

A good Tenant Rep will leverage your requirement by launching a successful bidding war and prevent you from being a “captive audience” to one developer. The optimal number of bidders is usually three.  Even if there is one property that you and your representative agree is the best, creating a three-way competition will optimize your negotiating position. The result will be concessions and incentives that exceed the norm in the marketplace.

Protect you during lease negotiations so that you come away with terms that meet your present and potential future needs.

The Tenant Representative knows all the ins and outs of real estate transactions and will help you avoid possible pitfalls. For example, a tenant representative would ensure you retain such options as subletting or termination in case you eventually shrink your organization, outgrow the space, or need to close the office. Options for an exit strategy are overlooked at your peril.

Serve as a buffer between you and the landlord.

A Tenant Rep can act as the “bad guy” when necessary during negotiations. At the same time you are securing major economic concessions, relying on a tenant rep to act as the “bad guy” will keep your relationship with the landlord cordial.

Identify lease provisions that could cost you money during the lease term.

These often are hidden in the document and are easily overlooked. The tenant rep will reveal the hidden costs of leasing.

Handle the paperwork and other details of the lease negotiation.

Having a Tenant Rep prepare all proposal requests, financial analysis, and letters of intent will help to resolve issues before the final lease is prepared.  A professional tenant rep is familiar with real estate documents and how to compare proposals on an “apples to apples” basis. In addition, the tenant rep will help you avoid disasters caused by signing something by accident or out of ignorance.

Settle disputes that arise even after the lease is signed.

The Tenant Representative will serve as an experienced set of ears and eyes to verify the details of a transaction.  The rep’s transaction files will provide the documentation necessary to clarify what was said and done during the negotiation.

Only a select few real estate professionals exclusively represent tenants.  Such exclusive Tenant Reps never work on behalf of owners and developers.  Other real estate professionals divide their practice between both tenant and landlord representation and have a conflict of interest.  Make sure you select a Tenant Representative that is 100% on your side.

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.

I also wanted to reiterate that I am requesting meetings with Professional and Corporate Office Tenants.  I am looking to represent a handful of Tenants, at any given time, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email me to schedule a time to discuss how I can help.

Please dont keep me a secret.  Other than representing you, a referral is the greatest compliment I can receive.

My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios. 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend.  

Regards,  

Mark

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

 Mobile: 818-943-2959

Markrauch@traversrealty.com 

http://www.linkedin.com/in/markrauch 

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

Posted by: tenantreptimes | July 5, 2010

Make Sure Your Office Space Is Measured Properly

Presented By Mark D. Rauch

A direct and large financial component in your evaluation is the exact formula the landlord uses at each building to measure the office space. The usable area is simply that area of the building within the confines of your demising walls and exterior; no fancy explanation. While there may be some differences about space occupied by a large group of pillars, deep air conditioning units at the window, vertical penetrations such as elevator shafts and duct, the usable space is that area which you will occupy and use.

Building owners got smart years ago.  They used to lease whole floors to tenants who “used” the whole floor. Then when they had to break up floors for multi-tenants and add corridors, they added up the usable again of the remainder of the space and, low and behold, they had less usable area. The area to lease got smaller; the rent was the same so the landlord got less money. Not for long! For many years there were as many different measurement styles as there were landlords. To regulate, the Building Owners and Managers Association developed a set group of measurement criteria that ideally could be consistently used on any building. This method is published by BOMA as the American National Standard Method for Measuring Floor Area in Office Buildings. Of course the unscrupulous landlord may still measure to the corner drug store, but now the Tenant has ammunition too.

Your architect will immediately be able to determine the usable, no problem. With that in hand you need to determine what the “load factor” is in the building; that percentage increase to account for the proportionate share of common areas. Do not take the quoted load factor (known in some cases by its reverse calculation, “Efficiency”) at face value. Some landlords may use the wrong number or make one up to fit the market. Some agents will tell you to negotiate it. Well, without a yard stick or your architect will immediately be able to determine the usable, no problem. With that in hand you need to determine what the “load factor” is in the building; that percentage increase to account for the proportionate share of common areas. Do not take the quoted load factor (known in some cases by its reverse calculation, “Efficiency”) at face value. Some landlords may use the wrong number or make one up to fit the market. Some agents will tell you to negotiate it. Well, without a yard stick or knowledge where it should be, you’re just guessing. No guessing! Indicate to the landlord that you assume that the BOMA measurement applies in the building. Only a foolish landlord would answer no (or an uninformed one, but that’s to your advantage). Then simply have your architect follow the example of the BOMA method to determine the REAL rentable. If your number is higher than the landlord’s, don’t say anything, if lower you have a bona fide case to dispute his accuracy. In this case, indicate that you are prepared to move forward with the building only if the measurement (which multiplied by your rate you have negotiated) is fixed by your calculation or that you may disqualify the building.

In some egregious cases, the Landlord can add up all the “rentable” square footages on the lease documents in his building and actually arrive at a total square footage larger that the building itself.

The difference between rentable and usable is also referred to as the “rentable-to-usable ratio”, which is important to consider when you are boiling all of this down on your financial analysis which will back-calculate what each building is actually costing you on a usable basis for net-net comparisons. Some buildings will seem cheaper at the rental rate than others at face value, but catching the measurement differences may add up to costing more in the end analysis.

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.

I also wanted to reiterate that I am requesting meetings with Professional and Corporate Office Tenants.  I am looking to represent a handful of Tenants, at any given time, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email me to schedule a time to discuss how I can help.

Other than representing you, a referral is the greatest compliment I can receive.

My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios. 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend.  

Regards,  

Mark

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

 Mobile: 818-943-2959

Markrauch@traversrealty.com 

http://www.linkedin.com/in/markrauch 

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

Posted by: tenantreptimes | June 3, 2010

Translating “Landlordese” To English

Presented By Mark D. Rauch

Most real property leases are written with non-legal terms that read like Greek to the non-landlord. In fact, Microsoft Word often underlines them as misspellings or grammatically incorrect. This article will give you the tools to understand basic lease terms and beat the landlord at his/her own game. It is also essential to compare proposals from different buildings. Consider the following:

The premises have 10,000 rentable square feet. Rentable measurement is determined by BOMA Standards, 1996.

The load factor is 15%.

The rent shall be $20 per sf NNN.

Tenant improvement allowance is $20 per usable square foot.

Services supplied will be comparable to other class A office buildings in the area. Renewal shall be at 95% of market rate of other class A office buildings in the area.

Annual increases shall be 3% of the base rent or CPI increase, whichever is greater.

Operating expenses and real estate tax increases over the base year will be passed through prorata.

Rent shall begin on the commencement date, not the possession date.

These terms were never covered in law school or the bar exam, but they were created by landlords to make you feel illiterate in your own country!

RENTABLE – You have 8,500 sf within your walls as determined by BOMA (Defined Below). The landlord adds 15% to charge you a part of the common areas-hallways, bathrooms, lobbies, telephone rooms etc.

LOAD FACTOR – This is the common area factor added to usable square feet to yield rentable square feet. We started seeing this term in the 1980’s as a way to subtly increase rental income to the landlord. It is also known as the landlord’s “finger on the scale”.

BOMA MEASUREMENT – Building Owners and Managers Association has created definitions of measurement. Demising walls are measured to the middle of the wall. Corridor walls are measured to the inside wall of the premises. Exterior walls are measured to the predominate feature. Predominate feature means that the window or the wall is more or less than 50% of the total surface.

Here is where BOMA gets risqué – “No vertical penetrations are included”! This means the area of elevator shafts, stairwells, and HVAC stacks are excluded from measurement.

If you are starting to think you need an architect to verify the landlord’s measurement, you are correct. Measurement mistakes, unintentional and intentional, are common and usually in the landlord’s favor! Several of our clients have saved over 10% when we suggested measuring their space.

NNN – Triple net charges are added to base rent for operating expenses and real estate taxes. Charges include your pro rata share of utilities, insurance, management, repairs and maintenance, janitorial service, waste removal, security, lawn care. This should not include capital improvements such as a new roof or new parking lot. Triple net is an ala carte menu whereas gross is a complete dinner (see below).

GROSS RENT – Opposite of Triple net (NNN) rent. It includes base rent, operating expenses, real estate taxes, etc. (see above).

USABLE – “Usable square feet” is the space within your walls that you occupy and use exclusively.

ANNUAL ESCALATION – In today’s soft market, this is not a given. There is no statute that ordains an annual increase in a lease. Fairness usually means that the landlord be compensated for increases in operating expenses and taxes which currently approximate $10/sf in a class A office building. An inflationary increase or pro rata increase over the base year are fair. Beware of fixed or inflationary increases that are based on the base rent which not only compensates the landlord for inflation but increases his/her profit because mortgages are usually fixed.

CPI is consumer price index increase as defined by the Federal Government. It is used less often because of difficulty of determination.

SUITE ELECTRIC – This is not a typo or opposite of “bitter electric”. Landlords charge for electricity used within your suite for lights and wall outlets. Often these are separately metered. Guess who pays for the meter? Electric for air conditioning is not included unless a heat pump system is used. Beware!

CLASS A OFFICE BUILDINGS – There is no common accepted definition for this term. It will differ based on city or suburb, region of the country and if you are talking to an owner, user, landlord, assessor, buyer or lender. It is one of the most abused terms in real estate.

SUBURBAN – full service building with sit-down restaurant(s), health club/locker room, fiber optics to the building, some covered parking, bank, on site manager, on site engineer, janitorial personnel and security guards during the day. Its rent will be in the upper 10% of the market. Free parking on site may vary by area. A travel agency used to be included pre-internet. Tenants include large corporate law firms, Fortune 1000 companies and real estate developers.

URBAN – Buildings with rent in the upper 10% of the market. Starbucks Café, on site manager, on site engineer, janitorial personnel and security guards during the day, age is less than 35 years old.

CLASS B – A building with fewer amenities than class A. The majority of buildings are class B.

CLASS C – Suburban building containing one and a half story building that has no amenities and is not meant to impress clients. An urban building pre World War II with transoms, inadequate HVAC and has low rent in the bottom 25% of the market

BASE YEAR – The parties agree to the calendar year which operating expense and property taxes shall be used to compare increases or decreases to. It is often the year you move but it is negotiable and should be the second year of occupancy because the landlord has already factored current cost increases into your base rent. Beware of new buildings that have not been fully assessed. Lease language should include full assessment after substantial occupancy or you may pay substantial dollars for property tax increase. Real estate taxes usually increase substantially if the property is sold, so negotiate fixed annual increases.

OPERATING EXPENSES – Defined by the lease, it generally includes utility charges, property and casualty insurance, repairs and maintenance expense, janitorial service, waste removal, management fees, common area maintenance, security, window washing etc. It should not include legal expenses to collect delinquent rent or to sell or refinance the building. It should not include real estate broker fees or tenant improvement work.

TI (TENANT IMPROVEMEMT) ALLOWANCE – Landlord builds into your rent money that he will spend on your behalf to construct or demolish walls, replace or clean carpet, move or upgrade lights, replace ceiling tiles etc in your suite. Beware if the improvements are based on usable not rentable square feet. Also, is the landlord supplying HVAC equipment or is it coming out of your allowance?

If your improvement costs exceed the allowance, the landlord may amortize the cost over the lease term with interest so the tenant does not have upfront costs.

FREE RENT – There is a free lunch if the landlord does not increase the rent to recapture the free rent! In a soft market, landlords will abate rent to entice tenants. Landlords want to keep base rent high on the face of the lease to maximize financing and value for sales purposes. This is a good thing for a tenant to have but it is not tax deductible; you can’t have everything, but always ask!

REAL ESTATE BROKER – Licensed person who procures you for the landlord, represents the landlord, and is compensated by the landlord unless the parties otherwise agree. He/she has a duty under agency law and state real estate broker law is to convey your negotiating strategy to the landlord. Caveat Emptor!

TENANT REPRESENTATIVE – Your licensed real estate broker agent who may be paid by the landlord if all parties are informed and agree that he is your agent. Also known as a corporate real estate advocate, a tenant representative does not tell the landlord your negotiating strategy, but negotiates zealously for you.

We have attempted to level or tilt the playing field for the tenant.

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.

I also wanted to reiterate that we are requesting meetings with Professional and Corporate Office Tenants.  We are looking to represent a handful of Tenants, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email us to schedule a time to discuss how we can help.

My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios. 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend.  

Regards,  

Mark

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

 Mobile: 818-943-2959

Markrauch@traversrealty.com 

http://www.linkedin.com/in/markrauch 

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

Posted by: tenantreptimes | April 11, 2010

Office Tenant Relocation Stress

Presented By Mark Rauch

Research has shown that when in-house employees are responsible for management and details associated with office relocation, 40% of these employees quit or are fired within one year of the relocation. Moving is a very disruptive activity and rarely does a relocation occur with perfectly planned execution, peace of mind or a happy outcome. Routinely, employees – frequently administrative employees – are given the charge to coordinate and manage the logistics of relocation, including inventorying all the furniture, contacting moving companies, packing, move day coordination, unpacking and wrapping up after the move. 

Most people do not do this job very often, at least not with the rigors and professional skills of people who do this every day. Be sure to convene the team of people who are going to manage the move in-house, make sure their skill sets are suited for the task and that they have a willingness to perform the job. Be sure also to address the issue that these duties are not covered in their job description and that their work on the new assignment will be recognized and compensated. Many of these employees must retain all of their other duties as well and the possibility exists that these duties may strain under the weight of the additional relocation management work. Provide them with a method to register any issues which may arise during the move management period so that a record can be kept and the employer can plan for and track employee concerns and stress. 

It is good practice to retain a move management company who has the professional skill and leadership in hand and who does this every day. These companies pay for themselves with their planning kits, needs assessments and mechanism for successfully achieving competitive bids.

At the end of the move, a period of decompression will take place, both from the duties and from the actual move. Be sure to offer and provide a debriefing session with your employee afterward, giving them the opportunity to provide constructive input and update their employment file for having taken on the additional responsibilities.  

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document. 

I also wanted to reiterate that we are requesting meetings with Professional and Corporate Office Tenants.  We are looking to represent a handful of Tenants, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email us to schedule a time to discuss how we can help.

My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.  Assignments range from single office lease transactions to national and multi-national real estate portfolios. 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend.  

Regards,  

Mark

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

 Mobile: 818-943-2959

Markrauch@traversrealty.com 

http://www.linkedin.com/in/markrauch 

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

 
 

Posted by: tenantreptimes | March 15, 2010

10 Essential Tenant Improvement Issues-Part 1

Presented by Mark D. Rauch

Most commercial office Lease transactions involve some sort of interior Tenant Improvement (“TI”) Construction.  This can be as minor as adding new paint and carpet to spruce up tired space, or an extensive, full build-out from a “shell condition.”

1. Funds to Pay for Build-out of Space

Often a Landlord provides a Tenant Improvement Allowance to fund the reconfiguration of office space to better suit a Tenant’s specific needs.  This can include adding or removing walls, moving doors, adding lighting or by adding or refurbishing a break area or work room.  A Tenant Improvement Allowance can range from $10.00/Rentable Square Feet (RSF) for new paint only to $60.00/RSF, or more, for an extensive, high-quality build-out

2. What Tenant Improvement Funds Can be Used For

Landlords typically allow Tenants to utilize a Tenant Improvement Allowance to pay for interior elements associated with improving a Landlord’s building that will have residual value.  Therefore, a Tenant Improvement Allowance generally cannot be used to pay for Tenant furnishings or a Tenant’s phone/data cabling installation although many times your Tenant Rep will be able to negotiate some of these items into the Tenant Improvement allowance.

3. How Tenant Improvement Funds are Determined

The amount of Tenant Improvement Allowance offered varies, and is often quoted as “negotiable” by the Landlord or its listing brokers.  The key factors impacting a Landlord’s determination of the Tenant Improvement Allowance include the length of the Lease term, the Tenant’s credit strength, the Vacancy rate in the building (which impacts a Landlord’s level of motivation) and the Type of building owner (institutional vs. private).  Because the Tenant Improvement Allowance is a concession offered to Tenants, Landlords will offer more generous Tenant Improvement Allowances during soft markets (when vacancy rates are high) and less Tenant Improvement Allowance as the office markets strengthen (i.e. vacancy rates drop).

4. The Build-out Process

If a Tenant Improvement Allowance is offered to the Tenant, the Tenant may hire the architect, engineers and general contractor and assumes the management responsibility and financial and schedule risk for completing the project.  Alternatively, the Landlord may hire the design and construction team and manage the project.  Under both arrangements, the key issue for the Tenant is developing a detailed construction plan and securing accurate advance construction cost estimates in order to feel confident that the Tenant Improvement Allowance will fully cover the construction costs or, if not, know in advance the additional amounts it must pay to complete the project.

5. Turnkey build-out

In some cases, a Landlord will offer a Tenant a “Turnkey” build-out of the Tenant’s desired layout.  With this arrangement, the Landlord and Tenant mutually agree upon a construction plan and the Landlord then hires, supervises and pays the architect, engineer(s) and general contractor as necessary to deliver the space to the Tenant as had been mutually agreed.  Under this arrangement the Landlord assumes the management and schedule risk and the Tenant is essentially handed the keys to its newly completed space.  The key for both the Landlord and Tenant is having a plan that clearly identifies what will be delivered to the Tenant.

6. Determining the Tenant Improvement Allowance

The amount of Tenant Improvement Allowance that a Landlord is willing to offer a Tenant depends upon several factors including the length of the Lease term, the Tenant’s credit strength, the vacancy rate in the building (which impacts a Landlord’s level of motivation) and the type of building owner (institutional vs. private).  Because the Tenant Improvement Allowance is a concession offered to Tenants, Landlords will offer a more generous Tenant Improvement Allowance in soft markets and less Tenant Improvement Allowance as the office markets strengthen.

7. Who Oversees Construction?

In many cases where the Landlord offers a Tenant Improvement Allowance, the Landlord will hire the architect, engineers and general contractor and will provide the construction management for the project, typically charging a fee of 3% – 5% of the construction costs.  This method can be advantageous to a Tenant who does not have the time or expertise to effectively manage a Tenant Improvement Construction project.  In addition, schedule delays (unless caused by the Tenant) become the Landlord’s responsibility, and the Lease Commencement date will typically be the date that the Landlord has “substantially completed” the Tenant Improvement Construction and the Premises are available for occupancy.

8. When the Tenant Controls the Process

In other cases, a Tenant may hire the architect, engineers and general contractor and assume the management responsibility for completing the project.  The Tenant gains more control but will also assume significantly more responsibility and risk for completing the required Tenant Improvements.  Delays in the schedule may hurt the Tenant if the Lease is structured such that the Lease commences, for example, 90 days after Lease signature.  If there are construction delays, the Tenant may be responsible to pay rent even though the Premises are not ready for occupancy.  There is also a hybrid scenario wherby the Tenant will hire the architect and the Landlord will use his/her contractor to build the space out.

9. Know the Costs Upfront

Under either arrangement, the key issue for the Tenant is developing a detailed construction plan and securing accurate advance construction costs estimates so that the Tenant is confident that its Tenant Improvement Allowance will fully cover the construction costs or, if not,  the Tenant knows in advance the additional amounts it must pay to complete the project.

10. Benefits of Using a Project Manager

Tenant Improvement design and construction is time consuming and requires attention to detail.  Numerous decisions are required ranging from office and conference room sizes and locations, to paint, carpet and counter surface selections, to details about electrical outlets and lighting.  Changes made after construction has started can be expensive.  Many Tenants engage outside Project Managers to help them successfully navigate the Tenant Improvement Construction.  Experienced Project Managers easily earn their fees by savings Tenants thousands of dollars in the design and implementation stages of a project. 

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document. 

I also wanted to reiterate that we are requesting meetings with Professional and Corporate Office Tenants.  We are looking to represent a handful of Tenants, each occupying 5,000 rentable square feet to 500,000 rentable square feet.  Please call or email us to schedule a time to discuss how we can help.

My focused specialty is solely driven to advocate the office space interests of Southern California-based corporations and professional services firms in leasing and purchasing negotiations of all types-renewals, relocations, renegotiations, recasting, subleasing, terminations and investments on a local, regional, national and international basis through a network of offices in 200+ markets around the world.

Assignments range from single office lease transactions to national and multi-national real estate portfolios. 

It is my sincere desire to develop meaningful, long term relationships as your trusted Tenant Rep Consultant and friend.  

Regards,  

Mark

MARK DAVID RAUCH

Mark David Rauch

Senior Vice President

License # 01019455

Direct: 213-430-2469

Mobile: 818-943-2959

Markrauch@traversrealty.com 

http://www.linkedin.com/in/markrauch 

http://twitter.com/irepthetenant

Mark Rauch’s Tenant Rep Times eNewsletter Archive

Join Our eNewsletter Family Of Office Tenant’s

To schedule a time to discuss your particular office space issues with me, please use the contact form below to send a direct request to me.  Messages are sent directly to my email inbox and will not be viewable by the public.  If you wish to post a public reply about any of my articles or any other portion of my website, please use the comment form available at the bottom of each article or page.

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